Unassociated Document

-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AQhDsZ8A7fy3Udwg8egubXtWR9E2oqETf9HtY9JiP8vIYcYRM/EYRn6KUbXZbeLG mtBFWlKY2uCwrRp8sLl7+w== 0001144204-06-025513.txt : 20060621 0001144204-06-025513.hdr.sgml : 20060621 20060621080005 ACCESSION NUMBER: 0001144204-06-025513 CONFORMED SUBMISSION TYPE: SC 13D/A PUBLIC DOCUMENT COUNT: 22 FILED AS OF DATE: 20060621 DATE AS OF CHANGE: 20060621 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: MIRANT CORP CENTRAL INDEX KEY: 0001010775 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 582056305 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D/A SEC ACT: 1934 Act SEC FILE NUMBER: 005-78781 FILM NUMBER: 06916340 BUSINESS ADDRESS: STREET 1: 1155 PERIMETER CENTER WEST STREET 2: SUITE 100 CITY: ATLANTA STATE: GA ZIP: 30338 BUSINESS PHONE: 6785795000 MAIL ADDRESS: STREET 1: 1155 PERIMETER CENTER WEST STREET 2: SUITE 100 CITY: ATLANTA STATE: GA ZIP: 30338 FORMER COMPANY: FORMER CONFORMED NAME: SOUTHERN ENERGY INC DATE OF NAME CHANGE: 19980729 FORMER COMPANY: FORMER CONFORMED NAME: SEI HOLDINGS INC DATE OF NAME CHANGE: 19960315 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: Pirate Capital LLC CENTRAL INDEX KEY: 0001295984 IRS NUMBER: 030445177 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D/A BUSINESS ADDRESS: STREET 1: 200 CONNECTICUT AVENUE STREET 2: 4TH FLOOR CITY: NORWALK STATE: CT ZIP: 06854 BUSINESS PHONE: 203 854 1100 MAIL ADDRESS: STREET 1: 200 CONNECTICUT AVENUE STREET 2: 4TH FLOOR CITY: NORWALK STATE: CT ZIP: 06854 SC 13D/A 1 v045920_sc13da.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------- SCHEDULE 13D (Rule 13d-101) INFORMATION TO BE INCLUDED IN STATEMENTS FILED PURSUANT TO RULE 13d-1(a) AND AMENDMENTS THERETO FILED PURSUANT TO RULE 13d-2(a) Under the Securities Exchange Act of 1934 (Amendment No. 3)* Mirant Corporation ------------------------------------------------------------------------------- (Name of Issuer) Common Stock, par value $0.01 per share ------------------------------------------------------------------------------- (Title of Class of Securities) 60467R100 ------------------------------------------------------------------------------- (CUSIP Number) Thomas R. Hudson Jr. Pirate Capital LLC 200 Connecticut Avenue, 4th Floor Norwalk, CT 06854 (203) 854-1100 ------------------------------------------------------------------------------- (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications) June 20, 2006 ------------------------------------------------------------------------------- (Date of Event which Requires Filing of This Statement) If the filing person has previously filed a statement on Schedule 13G to report the acquisition that is the subject of this Schedule 13D, and is filing this schedule because of Rule 13d-1(e), 13d-1(f) or 13d-1(g), check the following box. [_] NOTE: Schedules filed in paper format shall include a signed original and five copies of the schedule, including all exhibits. See Rule 13d-7 for other parties to whom copies are to be sent. (Continued on following pages) (Page 1 of 6 Pages) - ------------------------- * The remainder of this cover page shall be filled out for a reporting person's initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page. The information required on the remainder of this cover page shall not be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange Act of 1934 ("Act") or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes). - ------------------- ------------------ CUSIP NO. 60467R100 SCHEDULE 13D PAGE 2 OF 6 PAGES - ------------------- ------------------ - -------------------------------------------------------------------------------- 1 NAME OF REPORTING PERSON I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY) PIRATE CAPITAL LLC - -------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) |_| (b) |X| - -------------------------------------------------------------------------------- 3 SEC USE ONLY - -------------------------------------------------------------------------------- 4 SOURCE OF FUNDS* AF - -------------------------------------------------------------------------------- 5 CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) or 2(e) |_| - -------------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION Delaware - -------------------------------------------------------------------------------- 7 SOLE VOTING POWER -0- -------------------------------------------------------- NUMBER OF 8 SHARED VOTING POWER SHARES BENEFICIALLY 4,868,311 OWNED BY -------------------------------------------------------- EACH 9 SOLE DISPOSITIVE POWER REPORTING PERSON WITH -0- -------------------------------------------------------- 10 SHARED DISPOSITIVE POWER 4,868,311 - -------------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 4,868,311 - -------------------------------------------------------------------------------- 12 CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* |_| - -------------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 1.6% - -------------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON* IA - -------------------------------------------------------------------------------- * SEE INSTRUCTIONS BEFORE FILLING OUT! - ------------------- ------------------ CUSIP NO. 60467R100 SCHEDULE 13D PAGE 3 OF 6 PAGES - ------------------- ------------------ - -------------------------------------------------------------------------------- 1 NAME OF REPORTING PERSON I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY) THOMAS R. HUDSON JR. - -------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) |_| (b) |X| - -------------------------------------------------------------------------------- 3 SEC USE ONLY - -------------------------------------------------------------------------------- 4 SOURCE OF FUNDS* AF - -------------------------------------------------------------------------------- 5 CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) or 2(e) |_| - -------------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION United States of America - -------------------------------------------------------------------------------- 7 SOLE VOTING POWER -0- -------------------------------------------------------- NUMBER OF 8 SHARED VOTING POWER SHARES BENEFICIALLY 4,868,311 OWNED BY -------------------------------------------------------- EACH 9 SOLE DISPOSITIVE POWER REPORTING PERSON WITH -0- -------------------------------------------------------- 10 SHARED DISPOSITIVE POWER 4,868,311 - -------------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 4,868,311 - -------------------------------------------------------------------------------- 12 CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* |_| - -------------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 1.6% - -------------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON* IN - -------------------------------------------------------------------------------- * SEE INSTRUCTIONS BEFORE FILLING OUT! - ------------------- ------------------ CUSIP NO. 60467R100 SCHEDULE 13D PAGE 4 OF 6 PAGES - ------------------- ------------------ The Schedule 13D filed on June 1, 2006 by Pirate Capital LLC, a Delaware limited liability company ("Pirate Capital"), and Thomas R. Hudson Jr. (together, the "Reporting Persons"), relating to the shares of common stock, par value $0.01 per share (the "Shares"), of Mirant Corporation (the "Issuer"), as previously amended by Amendment No. 1 filed on June 12, 2006, and Amendment No. 2 filed on June 15, 2006, is hereby amended by this Amendment No. 3 to the Schedule 13D. ITEM 4. PURPOSE OF TRANSACTION Item 4 of the Schedule 13D is hereby amended by the addition of the following immediately preceding the last paragraph thereof: On June 20, 2006, Pirate Capital sent a letter to the Issuer (the "Letter"), urging the board of directors to undertake measures to maximize long-term shareholder value, as described therein. A copy of the Letter is attached hereto as Exhibit E and incorporated herein by reference. Also attached hereto as Exhibit F and incorporated herein by reference is a shareholder perspective with respect to the Issuer prepared by Pirate. - ------------------- ------------------ CUSIP NO. 60467R100 SCHEDULE 13D PAGE 5 OF 6 PAGES - ------------------- ------------------ SIGNATURES After reasonable inquiry and to the best of each of the undersigned's knowledge and belief, each of the undersigned certifies that the information set forth in this statement is true, complete and correct. Dated: June 20, 2006 PIRATE CAPITAL LLC By: /s/ Thomas R. Hudson Jr. --------------------------- Name: Thomas R. Hudson Jr. Title: Managing Member /s/ Thomas R. Hudson Jr. ------------------------------- Thomas R. Hudson Jr. - ------------------- ------------------ CUSIP NO. 60467R100 SCHEDULE 13D PAGE 6 OF 6 PAGES - ------------------- ------------------ EXHIBIT INDEX 1. Exhibit A - Joint Acquisition Statement, dated June 1, 2006 (previously filed). 2. Exhibit B - Letter to the Issuer, dated June 1, 2006 (previously filed). 3. Exhibit C - Letter to the Independent Directors of the Issuer, dated June 12, 2006 (previously filed). 4. Exhibit D - Press Release, dated June 14, 2006 (previously filed). 5. Exhibit E - Letter to the Issuer, dated June 20, 2006 6. Exhibit F - Shareholder Perspective, dated June 20, 2006 EX-99.(E) 2 v045920_ex99-e.txt [LOGO] PIRATE CAPITAL LLC - -------------------------------------------------------------------------------- June 20, 2006 Edward R. Muller Chairman and Chief Executive Officer Mirant Corporation 1155 Perimeter Center West Suite 100 Atlanta, GA 30338 Mr. Muller: Pirate Capital LLC, as the investment advisor to Jolly Roger Fund LP and Jolly Roger Offshore Fund LTD, is the beneficial owner of approximately 5 million shares, or 1.6%, of the common stock of Mirant Corporation ("Mirant" or the "Company"). We commend your decision to withdraw your proposal to acquire NRG Energy Inc. ("NRG") after concerns were raised by Pirate Capital and other significant stockholders. We further encourage management, after your meetings this week with shareholders, to promptly devise a more concise public strategy as to how the Company plans to utilize cash, and maximize long-term stockholder value. Enclosed you will find Pirate Capital's analysis of the methods we perceive would best maximize long-term stockholder value. We view Mirant as an undervalued and underleveraged independent power producer (IPP) with valuable domestic and international assets. We urge management to focus on closing the valuation gap and to implement a more efficient capital structure. Mirant has significant sources of cash including: cash on the balance sheet, capacity for additional leverage at Mirant Corporation, proceeds from the Philippines recapitalization plan, and a sale of all international assets. We estimate this cash to be approximately $4.7 billion and believe it should entirely be used to buyback Mirant stock. Maximize stockholder value by closing the valuation gap, divesting assets, and buying back stock: 1) Mirant's value today assuming a peer valuation of 7.7x 2007 EBITDA is approximately $32.00 per share. 2) Near term sources of cash for a stock repurchase program: a. $1.3 billion of available cash on balance sheet b. $500 million via a conservative levered re-cap at Mirant Corporation c. $940 million estimated cash from Philippines recap d. Total near term cash available for buyback $2.74 billion 3) Mid term sources of cash for a stock repurchase program: a. $1.2 billion of proceeds from sale of remaining Philippines equity b. $775 million of proceeds from sale of Caribbean assets c. Total mid term cash available for buyback approximately $2 billion Upon the completion of the aforementioned transactions Mirant will become a pure play North American IPP. We believe at that time the Company should trade at the peer group P/E of 18.3x vs. the current P/E of 13.7x. Thus, including the initiatives and trading at a peer group multiple, a total of approximately $15.00 per share in value will be created implying a stock price of approximately $40 per share. In addition to the aforementioned initiatives Mirant should also implement additional actions. Such actions include the election of shareholder representatives to the Board, a potential sale of domestic non-core assets, the resetting of guidance to incorporate the $40 - $45 million per annum improvement in EBITDA (from the proposed PEPCO settlement), and a modification of Mirant's bylaws to require a shareholder vote on all acquisitions exceeding 10% of the equity market capitalization of the Company. - -------------------------------------------------------------------------------- 200 Connecticut Avenue; 4th Floor, Norwalk, CT 06854 Phone: 203-854-1100 Fax: 203-854-5841 www.piratecapitalllc.com Implicit in this analysis is the view that the Board must at all times be open to entertaining viable offers for the outright sale of the Company in its role as fiduciary for shareholders. In the event the Company is unable to proactively close the perceived valuation gap by implementing the requested initiatives, we would then strongly urge the Company to put itself up for sale. We look forward to working with you and the entire Mirant Board of Directors to devise a strategy to enhance stockholder value. We believe that a meeting with the entire Mirant Board would be mutually beneficial to both parties providing the Board an opportunity to better understand our analysis and thoughts on maximizing stockholder value. Very truly yours, /s/ Thomas R. Hudson Jr. Thomas R. Hudson Jr. Portfolio Manager cc: Mirant Board of Directors EX-99.(F) 3 v045920_ex99-f.htm Unassociated Document

Mirant shareholder perspective

I. Executive summary

1. Executive Summary

Mirant is undervalued relative to its peer group

It is also under-levered resulting in an inefficient capital structure

In order to close the value gap, Mirant should:

use excess cash on balance sheet and from the Philippines recapitalization to buy back shares

increase leverage to be in line with peer group levels and use proceeds to repurchase stock

sell its international assets and become a pure-play US business

consider sale of non-core domestic assets resulting in a stronger US-focused company

use the proceeds of asset sales in order to repurchase additional shares

If management is unable to close the value gap by year-end 2006, management should explore a sale of the
company

Additional shareholder-friendly recommendations are as follows:

elect shareholder representatives to the Board

modify Mirant’s bylaws to require shareholder vote on acquisitions exceeding 10% of Mirant’s market
capitalization

reset guidance incorporating the $40-$45m EBITDA improvement (from the Pepco Settlement)

2. Mirant vs. peer group

2.1 Valuation compared to peer group

² Source Thompson Financials;Reliant 2007 P/E excluded from the group mean

³ On a diluted basis based on Series A and Series B warrants that expire on January 3, 2011 with exercise prices of $21.87 and $20.54 respectively

⁴Adjustment including increase in 2007 EBITDA to $1.5bn (mid-point of management projections) and $45m of EBITDA increase for PEPCO settlement, and corresponding
increases to EBIT and earnings

Mirant appears to be significantly under-valued relative to its peer group

IPP companies

¹Estimate based on publicly available information

⁴

2. Mirant vs. peer group

2.2 Credit profile compared to peer group

IPP companies

Mirant is under-levered compared to its peer group – even before accounting for its significant
cash position

¹Capex adjusted upward by $75m to reflect “normalization” of environmental capex (circa $250 per annum)

3. Mirant value creation

3.1 Mirant sources of cash and value creation

Initial $1.3 billion share
buyback

Re-leverage and buyback
shares

Recapitalize Philippines and
buyback shares

Action

Current balance sheet

Incremental borrowing to
correct under-leverage

4.5x EBITDA recapitalization
proceeds net of current debt

Sources of cash

$1,300 million

$500 million

$939 million

Cash generation

Total cash:
$2.7bn

Share repurchase
at $28/share

$0.18

$0.06

$0.09

EPS enhancement

Total EPS
accretion: $0.33

Mirant 2007 P/E
multiple

$2.49

$0.77

$1.21

Mirant value
creation per share

Total value
creation: $4.48

Credit statistics:

Gross Debt/EBITDA

Debt-Capitalization

EBITDA/Interest

EBIT/Interest

Using current cash as well as proceeds from re-leveraging and recapitalizing Mirant Philippines
business to repurchase shares can create significant value for shareholders

4.8x

53.4%

2.6x

2.0

4.1 Other strategies for consideration

4. Other value-enhancing strategies

Sell international businesses

There is strong strategic and financial rationale for selling Mirant international business (Philippines and Caribbean)

Eliminate emerging market exposure

“Pure play” US generator potentially more attractive to US investors

Lack of synergies with US operations

Increase US financial flexibility

Value enhancing

Numerous local and global buyers

Local investors

Global IPPs

Financial investors

Rationalize domestic generation portfolio

Strategic rationale include:

Optimize US generation portfolio

Reduce merchant exposure

Enhance focus on key geographic markets

Abundant buyers in sellers’ market

Trade buyers

Utility buyers (for native load)

Financial buyers

Selling international, in particular, may expand Mirant’s valuation multiples to peer group
levels, with the elimination of emerging market risks

5. Conclusion

5.1 Mirant value creation potential from recommended strategies

International asset sale along with share buy back, re-levering and Philippines recapitalization
can create significant value, particularly if Mirant is re-valued at its peer group’s earning
multiple once its emerging market exposure is eliminated

Initial $1.3 billion
share buyback

Re-leverage and
buy back shares

Recapitalize
Philippines and
buy back shares

Value
creation at
Mirant 2007
P/E multiple

Total of $0.33 per share * 13.7x = $4.48 per share

Sale of international
assets and buy back
shares

Rationalize
domestic
portfolio

Value
creation at
peer group
2007 P/E
multiple

EPS Impact

Current base earnings plus value creation; valued at Mirant peer group multiple

$1.80 + $0.40 = $2.20 (EPS) * 18.3x = $40.42 Value creation of $15.07 per share

$0.08

$0.18

$0.06

$0.09

$0.08*13.7x = $1.04

Core recommendations

Additional Strategies

Total

$0.40

$5.52

¹AES excluded from peer group multiple applied

Appendix A: Detailed value creation analysis

¹Includes warrants exercisable

Use of excess cash to buy back shares creates value of $2.49 per share, based on
assumptions stated above

Value creation ($ per share)

Credit profile 2006 ($ millions)

Assumptions

A.1 Step 1 – Initial $1.3bn share buy back funded by excess cash

Appendix A

Pre-adj.

Adj.

Post adj.

Income items

2006

EBITDA

$1,266

EBIT

956

Net Income

429

(36)

393

Net Interest

314

373

Cash flow items

Net income

429

(36)

393

Add back D&A

310

Add tax savings/ deferred tax

300

FFO

1,039

(36)

1,003

Capex

460

Total Capitalization

Total Debt

4,494

Market cap

7,805

(1,300)

6,628

Shares outstanding

308

(46)

261

RATIOS & RESULTS

Total Debt to EBITDA

3.5x

Debt to Total capitalization (mrkt)

36.5%

40.4%

EBITDA / Net Interest

4.0x

3.4x

EBIT / Net Interest

3.0

2.6

FFO / Net Interest

3.3

2.7

(FFO - Capex) / Debt

12.9%

12.1%

A.2.1 Step 2 – Re-levering (post initial buy back) with incremental $500mm
share repurchase

Assumptions

Credit profile 2006 ($ millions)

Value creation ($ per share)

Further re-levering creates additional value of $0.77 per share resulting in total value creation
with initial share buyback (Step 1) of $3.27 per share

Appendix A

Pre-adj.

Adj.

Post adj.

Income items

2006

EBITDA

$1,266

EBIT

956

Net Income

393

(22)

371

Net Interest

373

408

Cash flow items

Net income

393

(22)

371

Add back D&A

310

Add tax savings/ deferred tax

300

FFO

1,003

(22)

981

Capex

460

Total Capitalization

Total Debt

4,494

500

4,994

Market cap

6,628

(500)

6,175

Shares outstanding

261

(18)

244

RATIOS & RESULTS

Total Debt to EBITDA

3.5x

3.9x

Debt to Total capitalization (mrkt)

40.4%

44.7%

EBITDA / Net Interest

3.4x

3.1x

EBIT / Net Interest

2.6

2.3

FFO / Net Interest

2.7

2.4

(FFO - Capex) / Debt

12.1%

10.4%

A.2.2 Step 3 – Recapitalization of Philippines – mid case (post initial
buyback)

Assumptions ($m)

Credit profile 2006 ($ millions)

Value creation

Recapitalization of Philippines based on 4.5x EBITDA creates incremental value of $1.21 per
share; total value creation with initial buyback and re-levering (Step 1 and Step 2) of $4.48 per
share

Appendix A

Appendix B: Cash and value creation from the
Philippines

Facing page 10

Recapitalization of Philippines

Note Increase on interest expense reflects interest savings on refinanced debt, and is presented on a post-tax basis

B.1 Step 3 – Recapitalization of Philippines – value creation (post initial
buyback and re-levering)

Overall value creation

Value creation from Philippines recapitalization

Overall value creation from recapitalization of Philippines including initial buyback and re-
levering ranges from $4.07 per share to $5.34 per share

Appendix B

Appendix C: Additional value creation options

Facing page 11

Sale of Mirant international businesses

A sale of Mirant’s international businesses appears both value-enhancing and strategically
attractive

2,200 MW of generation, mostly under long-term contract

Three largest plants (Pagbilao, Saul, and Ilijan) comprise
95% of total capacity

90% of revenue from capacity payments

Government guarantee, inflation adjustment and USD
payment denomination all serve to mitigate risks

Local investors – may require partners: Ayala Corp, Aboitiz

Global IPPs: AES, CDC, ENDESA, Gas Natural, Fortis Inc.

Power Corp, Alcantara Group, First Gen Corp

Global IPPs: OneEnergy (CLP- Mitsubishi), IPR, Marubeni

Financial investors: AIG, Ontario Teachers, Macquarie

80% interest in Jamaican utility with 603 MW serving
550,000 customers – price cap with 5-year rate cycles

55.4% interest in Grand Bahamas utility company with 169
MW and 19,000 customers – rate increase can track CPI

39% interest in Trinidad & Tobago generation with 1,156
MW of generation under sold under PPA through 2009

25.5% interest in Curacao utility with 133 MW; also $40m
convertible preferred in Aqualectra (Curacao)

Financial investors: Conduit Capital, EIF, AIG

Caribbean

Philippines

Business profile

Divestiture rationale

Other considerations

Potential buyers

Eliminate emerging market exposure

“Pure play” US generator potentially more attractive to US investors

Lack of synergies with US operations

Increase US financial flexibility

Value enhancing

Foregone earnings / cash flow contribution

Potential tax leakage

C.1 Indicative international asset valuation

Valuation Range

Philippines

Note Caribbean valuation based on a 2005 EBITDA multiple; Assumed range of 7.5x-8.5x Philippines and Caribbean 2005 EBITDA multiple

Appendix C

Impact of international asset sale

Facing page 12

Note Mid-point Debt/EBITDA multiple is assumed for recapitalization

Philippines

Caribbean

Assumptions

Sale price

2,850

1,150

Existing debt

1,656

375

Equity value

1,194

775

EBITDA

368

150

EBIT

296

105

Net income

FFO

160

1,194

775

Cash proceeds (after debt repayment and

before considering capital gains tax)

C.2 Step 4 – Asset sales (post initial buyback and mid case Philippines
recapitalization)

Assumptions

Credit profile 2006 ($ millions)

Value creation (assuming no capital gains tax)

Selling international can create incremental value of $1.04 per share resulting in a total value
creation of $5.52 (with initial buyback and Philippines recapitalization); if the resulting 2007
EPS - with removal of emerging markets exposure - can be valued at domestic peer group
levels, total value creation can exceed $15.00 per share

Notes

¹ Mid case recapitalization assumed for the Philippines

² Peer PE excludes AES

Appendix C

Pre-adj.

Adj.

Post adj.

Income items

2006

EBITDA

$1,266

($518)

$748

EBIT

956

(401)

555

Net Income

321

(139)

182

Net Interest

488

(166)

323

Cash flow items

Net income

321

182

Add back D&A

310

(117)

193

Add tax savings/ deferred tax

300

FFO

931

675

Capex

460

Total Capitalization

Total Debt

6,099

(2,031)

4,068

Market cap

5,325

(1,969)

3,542

Shares outstanding

210

(70)

140

RATIOS & RESULTS

Total Debt to EBITDA

4.8x

5.4x

Debt to Total capitalization (mrkt)

53.4%

53.5%

EBITDA / Net Interest

2.6x

2.3x

EBIT / Net Interest

2.0

1.7

FFO / Net Interest

1.9

2.1

(FFO - Capex) / Debt

7.7%

5.3%